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Estate Planning Process: Beneficiary Designations & Concerns

Who Gets Your “Stuff” After Death

If you’re a “it’s better to give than receive” type of person, picking beneficiaries can be one of the most satisfying parts of the estate planning process. There are no restrictions on who can and cannot get your property. There is an exception in California. Married couples must leave at least one-half of their estate to their spouse. A disinherited spouse is entitled to receive their half of the community property, but the deceased spouse is free to give their half of the community property and all of their own separate property to anyone named in a valid will or Revocable Living Trust. Other than the spouse’s right to 1/2 of the community property, beneficiaries of your plan can be conceptualized into two distinct groups -“Direct” and “Alternate.” Choosing both direct and alternate beneficiaries is an important part of the estate planning process.

Primary and Residuary Direct Beneficiaries

A direct beneficiary is a person or organization named in a will, trust or other “pay-on-death” account that is to receive a specific gift of property. For instance, your son is a direct beneficiary if you leave him your prized car, favorite boat, and childhood coin collection. Specific gifts should be considered carefully in the overall estate planning process, especially in relation to valuation. A primary beneficiary is a person or organization named to receive specific property. Residuary beneficiaries receive any property not specifically left to the primary beneficiaries. For example, Jeffrey dies with a will and trust in place. Jeffrey’s testamentary documentation gives his truck to his friend Joe, his camping gear to his friend Maxwell, and $25,000.00 to the San Francisco SPCA. Jeffrey leaves the “rest, residue, and remainder” of his estate to his sister, Marguerite. Joe, Maxwell and the SPCA are all considered direct primary beneficiaries because they are to receive specific gift(s) of Jeffrey’s property. Marguerite is a residuary beneficiary and she will get Jeffrey’s entire estate other than the specific gifts.

In a perfect world, the estate planning process and documents you created to care for direct beneficiaries runs smoothly with everyone getting what you want them to get. The reality. The estate planning process is just that – a process. You need to account for the possibility that one or multiple direct beneficiaries may predecease you. This is the reason why the estate planning process entails determining who gets property should a direct beneficiary fail to survive the death of you (usually by a defined period of time – 30 days). By naming alternate beneficiaries, you ensure your “second choice” will get your property.

Beneficiary Issues & Concerns

Naming beneficiaries is the easy part of the estate planning process. The hard part is when there are unrelated issues involved that make the estate planning process difficult to properly carry out. The following are some concerns that should be addressed during the estate planning process.

Second or Subsequent Marriages: “Blended” families need to consider how best to account for needs of multiple conflicting parties in the estate planning process.

Unmarried Couples: There is no legal right for unmarried couples to inherit each other’s property regardless of the relationship that existed between the parties.

Unmarried or Unregistered Domestic Partners: People that are not married, nor are in a registered domestic partnership are single individuals that can leave anything they want to anyone they want.

Unequal Distribution of Property: It’s difficult to determine who gets what. Sometimes, parents want to leave unequal distributions to their kid(s) for one reason or another. In this case, the problem of the estate planning process is not creating the documents, but how your loved ones will react and the potential for conflicts to arise.

Shared Gifts: You can name more than one person to share in the inheritance of a gift (for instance, your home). The problems in the estate planning process here revolve around if the property should be sold and/or whether the parties are going to share an ongoing relationship in regards to the asset.

Practicing law since 2007, Sean specializes in the ever-changing laws related to real estate, business and estate planning. Embracing technology with a focus on personalized service, he understands the challenges of living and thriving in Silicon Valley. Tapping into his education in economics and business administration, Sean also serves on the non-profit Willow Glen Business Association.